SOFE Exam AFE Topic 1 Question 77 Discussion

Actual exam question for SOFE's AFE exam

Question #: 77
Topic #: 1

[All AFE Questions]

Insurance entities usually write covered-call options because they consider the premium received for writing the options to be either:

Aan economic hedge between a decline in market price and security

Ba decrease in yield on the underlying risk security

CBoth A & B

DNeither A nor B

Show Suggested Answer

Suggested Answer: D

by Merissa at May 31, 2024, 07:26 PM

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Tyisha

1 years ago

Definitely B. The premium is all about reducing the yield on the underlying risk security. It's like the insurance company is trying to squeeze every last drop of profit out of it.

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Coral

11 months ago

Yeah, it's all about managing risk and maximizing returns.

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Cherri

11 months ago

It's like a way for insurance companies to maximize their profits.

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Vincenza

12 months ago

I agree, the premium is definitely about reducing the yield on the underlying risk security.

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Kallie

1 years ago

So, it's like a win-win situation for them - reducing risk and increasing returns at the same time.

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Wynell

1 years ago

It's a smart move by insurance entities to use the premium as a way to manage risk and maximize profits.

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Nakita

1 years ago

I agree, the premium from writing covered-call options does decrease the yield on the underlying risk security.

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Mollie

1 years ago

I agree with Sarah. Writing covered-call options can provide both an economic hedge and decrease in yield on the underlying risk security.

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Sarah

1 years ago

I think the answer is C) Both A & B.

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Hmm, I'm not so sure. Isn't the premium just a way for the insurance entity to make some extra cash on the side? I mean, who cares about the underlying security when you're raking in the dough, right?

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Gaynell

1 years ago

I think the answer is C. The premium received for writing covered-call options is both an economic hedge and a decrease in yield on the underlying security. It's a win-win situation!

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Cristal

1 years ago

Yes, it's a great strategy for insurance entities to manage risk and generate additional returns.

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Ty

1 years ago

Yes, writing covered-call options can provide both protection and income.

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Brianne

1 years ago

I agree, writing covered-call options can provide both protection and income.

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Octavio

1 years ago

I agree, it's definitely a win-win situation.

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SOFE Exam AFE Topic 1 Question 77 Discussion

Contribute your Thoughts:

Tyisha

Coral

Cherri

Vincenza

Kallie

Wynell

Nakita

Mollie

Sarah

Kimi

Gaynell

Cristal

Ty

Brianne

Octavio